Former Lehman Brothers alum David Sherr's delinquent mortgages for his new hedge fund could certainly paid off. After acquiring the debt to benefit from the US housing collapse, Bloomberg said Sherr is now poised to earn higher profits.

According to a letter to investors obtained by the news agency, One William Street Capital Management LP, Sherr's $2.7 billion investment firm will be starting a new fund to acquire non-performing loans that are tied to delinquent borrowers who have yet to lose their homes to foreclosure. The letter said the non-performing loans, or NPLs, are being sold at 60% to 80% estimated property value, which offers the cleanest exposure to the US property market.

Sherr's One William Street, along with other investors which include Ellington Management Group LLC and Starwood Property Trust Inc, are focusing on soured property loans after home prices have increased 24% from 2012 and foreclosures dropping to their lowest levels not seen since 2007, Bloomberg said. Debt sales are set to increase as banks need to comply with new but strict regulations, forcing them to let go of such assets due to costs in holding such loans. Moreover, the debt sales are also partly attributed to the mortgage auctions held by the US government in its attempt to halt foreclosures and reduce losses at troubled agency Federal Housing Administration.

Ellngton Chief Executive Officer Michael vranos said, "The supply of NPLs is going to be very substantial for the next several years. Until last year, with the heavy supply of distressed securities, but only light supply of NPLs, we saw much better value in securities."

Vranos' company predicted that transactions will surpass the $25 billion worth of sales posted last year. The U.S. Department of Housing and Urban Development, which already has auctioned off at least 50,000 in FHA-insured, single-family NPLs since 2010, is eyeing for more auctions this year.

Altisource Residential Corp CEO Ashish Pandey expected that as many as 500,000 in NPLs could be put up for sale this year. He said in a conference in Las Vegas last week, "Banks have made a decision internally that a delinquent borrower is not a core customer. There's also headline risks, so for banks, it makes sense to sell."